Front-end systems are
occupying private banks’ efforts and spending on IT infrastructure,
but industry consultants point to a worrying lag in back-office
systems. Alison Ebbage looks at the importance of data management
and outsourcing in the second part of our IT special.
Go deeper with GlobalData
What is the use of a shiny new
front-end client-facing system, if the data that feeds the front
end is not reliable and timely? Up to now, private banks have
pushed these thoughts on to the back burner.
But decreased margins and
increasing regulatory requirements are putting pressure on
cost-income ratios, and are asking serious questions of private
bank’s back end bits.
One of several key areas for
attention coming out of PwC’s 2011 global private banking and
wealth management survey is the “operational lag effect” on
changes in back-office systems, says Jeremy Jensen, PwC’s global
private banking and wealth management leader for EMEA.
PwC research uncovered that banks
are not investing enough in improving back-office systems and
technology platforms.
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By GlobalDataInstead, many are choosing to put
more effort and resources into client-facing areas. A quarter of
respondents said they were still using older legacy systems with
manual interventions, including Excel spreadsheets, in some
areas.
Legacy system
overload
There remains a great deal to be
done to remove legacy and manual systems, and cost-income ratios
will remain stubbornly high unless institutions deal with their
systems and operational infrastructures, PwC says.
Lynne Landau, product manager for
private wealth management at packaged banking software provider
Temenos, says private banks know they will not get the full benefit
of an upgraded front end unless the middle and back end are also in
good order.
“It is all about how different
parts of an organisation deal with each other in a timely and
accurate way,” says Landau.
Moves are being made towards
increasing the strength of the middle office platform to best
provide robust data management. But given the current focus on the
front end and the fact that private banks are driven by business,
not IT needs, this is an area that has yet to receive a great deal
of investment.
Data demands
One concern is the way data flows
between middle and front end. Traditionally it has been held in a
mix of silos according to function, including tax, loans and
investments.
But now there is a pressing need to
bring data from different areas together and present it cohesively
in a consolidated form as clients demand more cohesive reporting
and banks want a single customer view.
Data also needs to be available no
matter what the access point, and be as up to date as possible.
It is all about master data
management. It is about taking data out of silos, storing it
centrally, then being able to send it back to the silos in a
suitable format and on demand.
This sort of solution is generally
based on service-orientated architecture (SOA) which works on the
principle of a central data hub feeding, and being fed by, a series
of spokes – the silos.
Multiple access
points
Martin Engdal, director of business
development and product marketing at portfolio management and
front-end solutions supplier Advent, says data needs to be made
available over a variety of access points.
“It also needs to be in as real
time as possible, to reflect the fact that clients might choose to
access their portfolios at any time,” he says.
“An overnight update is no longer
acceptable, and making data flows available in as close to real
time as possible is a significant challenge to be overcome if
multi-channel front-end access is to add value,” he says.
In addition, data must be
trustworthy and verifiable. Banks must be able to see the data’s
journey and be able to fully track any changes and calculations
that have been applied along the way.
This is not as straightforward as
it seems, given that a more sophisticated front end will inherently
create more data and feeds that need supplying, as well as storage
space.
Is data safe?
In turn, issues arise over how to
derive value from data. If data output is not reliable then the
whole trust-based banking relationship is negated.
Compliance also becomes an issue if
data is not verifiable and trustworthy.
“If you have lots of systems
interfacing with each other, the potential for data mismatch and
missed integration paths becomes greater,” says Dominic Sanna,
sales manager at investment management systems provider
Simcorp.
“You then get a downstream
inaccuracy effect on other processes, says Sanna.”
Peter McKenna, market development
director at data management and asset servicing and distribution
solutions provider DST Global Solutions, points out that with
regulation on the rise, middle and back office systems need to be
more robust.
“In many cases, regulators require
certain levels of frequency for reporting operating parameters and
that these parameters need to be within certain tolerance,” he
says.
“This means that process downtime
or errors in the data, whether caused by system interfaces or
humans, must be kept within limits. Middle and back office systems
need to be reliable and consistent in terms of performance (speed
and efficiency in processing, regardless of size of data), and be
timely.”
Client confidentiality is also
essential. Where Chinese walls are required they must be fully
functioning and up to date. Indeed banks will do anything to defend
reputational risk and data management, and security is high up the
list of priorities.
Show me the
data
For private banks, the strong push to
get better front ends relies on the core banking system being able
to feed it customisable, real-time, verifiable data through having
a robust archive, and by managing the data well.
The challenge of providing these
components is significant, considering the patchwork of legacy
systems that many are still living with, as alluded to in PwC’s
report.
Accordingly, the trend is to at
least look to full-scale single-vendor solutions.
This is especially so if the
solution is SOA-based, and can be done gradually by installing the
central hub, then replacing other systems one by one.
This lessens the pain of a big bang
solution and also means a phased integration can resolve any
sticking points.
“Clients are more willing to look
at a full-scale solution,” says Engdal. “They have got to the point
where everything is so patched that systems are no longer fit for
purpose and it is actually less complex to start over.”
Mark Dunleavy, financial services
manager at data integration provider Informatica, adds: “Clients
might like to take on lots of best-of-breed solutions, but
generally a best-of-breed solution will be best in its specialised
area, but distinctly average elsewhere. In fact, using lots of
best-of-breed vendor solutions has led us to the current state of
affairs, with siloed data and systems patched together.”
Best-of-breed system
bugs
The other issue with using
best-of-breed solutions is that although they provide a function,
they do not take care of the data management within that
function.
Private banks should then consider
starting off with a best-of-breed data management platform or
infrastructure hub, as is the case with an SOA solution, and build
out function by function, with the ability to connect to existing
systems and third parties in the meantime.
Although a phased approach with SOA
platforms is popular, not all choose to go down that route. RBS
Wealth Management is one currently in the midst of a big-bang
system overhaul to adopt a complete front-to-back solution for its
UK operations (see box, below).
Yet the PwC survey warns that
although vendors are increasingly offering a package that fits up
and down the value scale, few private banks have found success with
such a system.
The survey reports that using a
full-scale solution invariably means losing some of the bespoke
functions that an individual private bank might want.
The devil is in the detail, the survey warns. Cost-income
reduction is a necessary pursuit for banking heads but one eye must
remain on maintaining all-important client trust.
